11/28/2017 Morning Comments


Good Morning,


Wide open Midwest radar this morning, and should remain that way until late in the weekend.  The Plains will be dry for the next 7-days, with above normal temps allowing remaining harvest efforts to be wrapped up.  The central belt and Great Lakes sees chances for moisture Sunday/Monday with 0.10-0.50” expected in MO/IA/IL/IN/S-MI/IN.  Temps remain above normal in the 6-10 day, but definitely start to see a cool off in the 8-14.  The precip pattern also looks to be making a major change with much above normal precip expected across the Plains, western and central corn belt during the 6-10.  The moisture improvement holds in the 8-14, but is more centered over the eastern plains and MO/AR.  A major pattern change would be welcome for the Midwest as severe moisture deficits have shown up across many states, the worst of which would be N-TX/OK/KS/MO/AR/IA/NE/CO.  In South America, dry weather continues to dominate Argentina and S-Brazil, with dryness expected to continue until the end of next week in Argentina.  Moisture deficits are beginning to cause concern, although limited given planting is still occurring in most of Argentina which will be touched on below.


Easier markets again this morning as corn and wheat add to losses posted yesterday while soybeans attempt to give back everything gained on the first day of the week.  Volumes were meaningful yesterday on the first full session after the Thanksgiving Holiday, which also makes it difficult to discredit new contract lows in wheat contracts and a retest of lows in corn.  Interestingly enough, corn and wheat open interest have been falling as of late, partly due to option expiration and partly due to first notice day on Thursday as traders exit positions held in the December contract.  Given the recent weakness, rising open interest as funds add to short positions would be the expected outcome.  Corn open interest fell 26,726 contracts yesterday, again partially due to continued opex related moves, while soybean open interest rose 9,211 contracts, Chicago wheat fell 4,374 contracts and KC wheat was up 2,461 contracts.  There’s nothing supportive about new contract lows, and export programs which remain weaker than needed.  The next driver of price will be December deliveries, or lack thereof, as well as the ongoing vigil on South American weather.

Weekly crop progress was released yesterday afternoon, and will be the last report of the season until they start back up in April of 2018.  Despite the outrage over crop conditions this growing season, the end of the weekly progress reports does signal the onset of winter and the slowdown in news flow.  Corn harvest was estimated at 95% complete vs. 96% expected, 90% last week and 98% average.  Largest progress remaining would be in WI at 81% complete vs. 90% average, MI at 84% complete vs. 88% average and OH at 87% complete vs. 96% average.  Winter wheat conditions fell again this week, down 2pts to 50% G/E vs. 58% G/E a year ago.  Biggest declines were witnessed in HRW states with TX -5pts, KS -5pts, OK -7pts, CO -7pts and MT -3pts.  ID and OR were also down 7pts and 5pts, respectively.  SRW states mostly saw improvements.  While a very poor indicator of final yields, it is impressive to see some of the y/y changes in HRW conditions.  More than anything, it speaks to the continued dryness being witnessed in these states than it does anything about the drop.  KS is down just 1pt from a year ago, but MT is down 44%, SD down 33%, OK down 23%, ID down 23% and TX down 5%.  CO is up 19% and NE is up 6%.  National emergence progress was estimated at 92% vs. 88% last week and 92% average.

Inspection data was also released yesterday for the week ended 11/23, and nothing seemed all that impressive to me.  Wheat exports totaled 12.7mbu vs. the 19.6mbu needed weekly to hit the USDA export forecast.  Total exports are 453.5mbu which are down 5.9% from a year ago.  Corn shipments were just 25.1mbu vs. the 39.6mbu needed weekly.  25mbu is close to the seasonal pace needed, but exports will need to ramp up to 40mbu/wk at the end of December/January to take advantage of Brazil’s switch to soybeans and have a chance at hitting the forecast.  Total exports measure 285.4mbu which are down 42.3% from a year ago.  Soybean shipments totaled 58.0mbu which is above the 35.6mbu needed weekly, but continue to see the deficit with a year ago advance.  Total exports measure 768.2mbu which are down 13.5% from a year ago while the USDA is calling for a 3.4% increase in exports.  Both sales and inspections are of concern in soybeans.  From this point forward, we need to sell 25.5mbu of soybeans per week through the end of August to hit the USDA forecast.  This would be above the 18.0mbu pace during 16/17, as well as the 19.1mbu in 15/16 and the 11.1mbu pace in 14/15.  Similarly, the pace of exports per week needs to average 35.6mbu through August which would compare with the 32.5mbu average pace in 16/17, 29.7mbu in 15/16 and 28.7mbu in 14/15.  Both are doable, but would require record second half export programs to achieve.  The clock is ticking.

Speaking of soybeans, much is being made of the dryness in Argentina and how that is helping support futures.  One thing worth pointing out, however, is the fact planting progress hasn’t even crossed the 50% complete threshold.  Soybean planting as of the latest available data on 11/23 was 41% complete vs. 39% last year and 42% average.  Corn planting progress was estimated at 50% complete vs. 48% last year and 48% on the 5-yr average.  As we saw in the United States this year, however, some caution is warranted about making too much of dryness early in the growing season.  With any real concern in Argentina, meal should be the leading indicator, which it has been in terms of flat price.  Meal spreads have been weak, however, with the SMZ/SMH tying contract lows this morning as futures are off 0.88%.

Egypt’s GASC issued another snap tender overnight, pouncing on the most recent board weakness in the US.  FOB offers this morning look to include six cargoes of 55-60,000MT and three Romanian offers.  Russian offers look to be the cheapest by quite a margin with $192.99-199.00/MT seen from Russia and $199.49-203.99/MT FOB from Romania.  The slot is for January 11-20 shipment.  Algeria also issued a tender for a nominal 50,000MT of milling wheat for Jan/Feb 2018 shipment with a tender deadline later today.  Based on FOB indications last night, Argentine wheat would be the cheapest offer by a wide margin if anyone is willing to sell it.  Plenty of quality and quantity risks to juggle.  Otherwise US-HRW and French wheat are within $2.00/MT of each other, but it continues to be the stiff US basis levels keeping our wheat from connecting.  The domestic market remains in the driver seat in the US.


Bottom Line: Trends are down in corn and wheat, but still up in soybeans with managed fund positions in the latest COT data reflecting the same.  Domestic demand for corn remains strong from livestock feeding margins and continued record ethanol output.  Yet, it is the export pace we get caught up in so often given we have twice weekly updates on the pace of that program.  The concern is larger for wheat given 50% of the wheat we produce is intended for export, and that program remains just ho-hum.  18/19 is when wheat balance sheets get interesting, but not so for corn which could balloon further based on current acreage ideas.


Good Luck Today.

Tregg Cronin

Market Analyst






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